The Territory Ahead: Accountable-Care Organizations Under Health-Care Reform

The Patient Protection and Affordable Care Act, more commonly referred to as the Affordable Care Act (ACA), has driven the recent health-care reform in this country as well as the controversy among business and government officials as to whether it will ultimately generate a positive outcome for the health-care industry. Regardless of the anticipated outcomes, all agree that its effects will be widespread.

The ACA consists of five major components, one of which is delivery reform. The other areas include consumer protections, wellness and prevention, access to care and research. When focusing on delivery reform, a cornerstone of the ACA is the belief that in order to control the growth of health-care costs, the United States must move away from our current episodic payment structure and move toward a more coordinated preventative-payment model.

To accomplish this, the ACA incorporated measures to incentivize health-care providers to focus on outcomes and the level of care offered to patients. The intention is that providers who participate in ACA programs, such as accountable-care organizations (ACOs), will realize financial benefit when costs are controlled and patient outcomes improve. In theory, by controlling costs at the provider end, ACOs should be able to provide better, more coordinated care for beneficiaries while stabilizing cost growth in the future.

ACOs 101

ACOs are comprised of groups of health-care providers, including physicians’ offices, hospitals and long-term care facilities, who must work together to minimize consumption of services and costs, and to share responsibility and accountability for the care of their patients across the continuum. If cost savings are achieved, Centers for Medicaid & Medicare Services (CMS) will share part of the savings with the ACOs as an award for their success-as long as the requirements stated in the final regulations are met.

The final ACO regulations were published Oct. 20, 2011, and provide more flexibility in the creation and operation of ACOs than was originally proposed. The regulations expand over several key areas, including legal, governance, management and reporting. Some of the basic regulations include:

  • Creating a formal legal structure to allow receipt/distribution of shared savings;
  • Having patient-centered care processes;
  • Maintaining a minimum of 5,000 beneficiaries;
  • Reporting on cost and 33 quality indicators to CMS; and
  • Three-year participation requirement.

The final rule also alleviates several regulatory requirements that made participation in an ACO more difficult for some types of providers. For example, the updated regulations allow federally qualified health centers and rural-health centers to participate in the ACO program. Further details of the final regulations can be found in the Federal Register 42 CFR Part 425, published Nov. 2, 2011.

Challenges and Opportunities

Under the regulations, there are two different risk models from which an ACO can choose. The “one-sided” model is the risk-averse option in which the ACO will not be liable to pay CMS if costs increase during the three-year contract period, but will share in limited savings. The “two-sided” model requires the ACO to share in both the losses as well as the savings, but it is then eligible for higher bonuses.

The implementation of ACOs and this new delivery reform will introduce broad challenges and opportunities for the various stakeholders with providers being impacted the most. As the primary goal of accountable-care models is to ensure that patients receive care in the most appropriate and least intensive settings, and that the services delivered are not duplicated or conflicting, the new delivery system is expected to reduce volumes of high-end procedures, specialist services and duplicated care, which will decrease patient-care costs.1

The sharing of certain patient health-care information will also be increased between the providers within an ACO. This will enable providers to be able to see the services that other providers (within the ACO) are delivering, which will allow primary-care physicians to play an increased role in the delivery of health-care by serving as more effective care coordinators for their patients.2

Another benefit to implementing ACOs is the opportunity it provides for greater physician leadership. Physicians will likely have stronger leadership roles, leading to better coordinated and successful clinical care between the various types of providers within the group. This provides opportunity to create cross function synergies and increased clinical collaboration among physicians. Further, CMS is requiring providers and other ACO participants to control 75% of the organization’s governing body, meaning that the providers will have a strong emphasis in the leadership of ACOs.3

Challenges will also be faced with the establishment of ACOs. First, the start-up costs for ACOs are projected to be $1.75 million on average, which could provide difficulties for providers that are already cash-strapped and especially for smaller health-care entities. Providers must also invest in health-information technology to track patient quality indicators in order to meet the ACO regulations. Compliance programs, production of marketing material and restructuring of internal operations for CMS monitoring will also likely create high costs for the participating providers.

Successful ACOs will demonstrate that hospitals and long-term-care facilities work together to coordinate and integrate care for best patient outcomes. Consequently, senior-living providers may find hospitals to be a valuable referral base. From a hospital’s point of view, the most important criteria for working with senior-care providers are actual outcomes measures and their ability to minimize readmissions into the hospital. Acute-care providers will likely be looking for partnership with specific facilities in the community that demonstrate a consistent ability to appropriately admit and treat discharged patients. The acute-care providers will work with these senior-living providers to ensure discharge instructions are clear, implemented well and patients are not readmitted into the hospital in an effort to improve quality of care and to control costs.4

Another change for senior-care providers is the way they must market themselves in the new environment of coordinated care. Instead of only a business-to-consumer message, they will have to partner with hospitals, pharmaceutical organizations, therapy providers, home-health agencies and other health-care entities for a primarily referral-based business model, which will largely be derived from the quality of care they provide.5

1Yeung, W., Burns, H., Loiacono, D. “Are ACOs the answer to high-value healthcare?” American Health & Drug Benefits. Nov.-Dec. 2011, Vol. 4, No. 7, 441-449.

2 Ibid.

3 Ibid.

4 Gerace, A. “Pick Me! Hospitals & Senior Care Providers Partnering for Coordinated Care.” Senior Housing News. Web. 17 Jan. 2012.

5 Ibid.

Patrick McCormickPatrick McCormick is a partner with Plante Moran in Columbus. He can be reached at

Christy VanDeWater is a consulting manager with Plante Moran in Columbus. She can be reached at

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